Whether home owners had interests whose priority was protected under section 29(2)(a)(ii) of, and Schedule 3, paragraph 2, to the Land Registration Act 2002; whether a prospective purchaser can grant propietary rights to the vendor before completion and accordingly; whether Mrs Scott had an "interest" which belonged to her at the time of the disposition.

Judgment was handed down in the case of Scott v Southern Pacific Mortgages Limited and Others [2014] UKSC 52 on 22 October 2014. The appeal was brought by Mrs Scott against a decision of the Court of Appeal handed down by Lord Neuberger MR, Lord Justice Rix and Lord Justice Etherton which found that her claim to an equitable interest in the property could not take priority over the lender's charge.

The case was one of ten test cases tried by Judge Behrens in the High Court concerning "sale and rent back" transactions, whereby firms bought homes from inividuals, usually at a discount, and allowed the former homeownber(s) to remain in the properyy as tenants.The defendant homeowners were persuaded to sell their home to the purchasers (nominees for an entity called North East Property Buyers), the former having promised to the vendors the right to remain in their homes after the salet. In Mrs Scott's case this was for a discounted rent for an indefinite period of time, her tenancy even being transferable into her son's name were she to die while in occupation. In reality she was granted a two-year assured shorthold tenancy, thereafter a monthly perioidic tenancy terminable on not less than two months' notice.

The lenders who provided mortgages to the purchasers were not informed of these promises, having simply been made aware that they were being purchased on a "buy to let" basis, with vacant possession and that any tenancies granted would be on an assured shorthold basis of six months'. Neither the rights of occupation promised or the tenancies granted by the purchasers were permitted by their mortgage. Accordingly the lenders sought possession of the home in February 2009; an order for possession being granted on 17 March without her knowledge.

This warrant was suspended and Mrs Scott was joined as a defendant, alongside the first defendant Aimee Lydia Wilkinson, in the possession proceedings to argue that she an overriding interest, a proprietary right, under the Land Registration Act 2002 ("the 2002 Act") by virtue of assurances by the purchasers from exchange of contracts as to her right of occupation after completion. And further, that this was a sale subject to a reservation of the leaseback to the vendors, the vendors rights having effect from when they arose.

Judge Behrens sitting in the the High Court dismissed the vendors' argument. There was no moment in time that the interest could bind the lender, even had the promises given rise to a proprietary right. The Court of Appeal followed suit when they considered that the contracts clearly indicated that the vendors would be selling without reserving any beneficial interest or other rights in the property. It was not a sale subject to reservation.

The central issue for this court to address was therefore whether "a promise of the kind said to have been made here, made to the vendor by or on behalf of a prospective purchaser of land, is capable of giving the vendor a proprietary interest in the land, as opposed to a merely personal right against the purchaser, before the purchase is completed." From this flowed the following questions, (1) was the purchasers in a position at the date of exchange of contracts to confer equitable proprietary rights on the vendors (2) even if the propriteray rights were more than mere personal rights in equity, the rationale of the House of Lords' decision in Abbey National Building Society v Cann [1991] 1 AC 56 applies.

In Cann the Lords, Lord Oliver giving the leading opinion, determined that the relevant date for determining the existence of overriding interests was the date of registration of the estate, as opposed to completion and the person claiming the overriding interest to be in actual occupation on completion; see Schedule 3, paragraph 2 of the 2002 Act. Mrs Cann had no overriding interest, particularly as she was not in actual occupation at the time of completion.

In the present case Lord Collins gave the leading judgment, with which the other judges agreed, dismissing the appeal. He determined that a purchaser does not have proprietary rights for all purposes, and indeed these only arise where they were "fed" by the purchaser's acquisition of the legal estate, because the right is claimed to be derived from the rights of a person who does not have the legal estate; see e.g. Cuthbertson v Irving (1859) 4 H & N 742 at pp. 754-755. The vendors acquired no more than personal rights against the purchasers when they agreed to sell their properties, on the basis of the purchaser's promises. Even had the vendors had equitable rights of a proprietary nature against the purchasers on exchange of contracts, the mortgages would have taken priority.

Lady Hale added that his approach taken as to whether the contract of sale was an indivisible transaction with the conveyance and mortgage, was too harsh. "Should there not come a point when a vendor who has been tricked out of her property can assert her rights even against a subsequent purchaser or mortgagee?". As she declared, "there ought to be some middle way between the "all or nothing" approach of the present law".

Appeal dismissed.

database/2017-12-14T02:45:13.5486407Z/10650087

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